The common orthodoxy goes something like this. Apple has awoken the long slumbering smartphone category and will be the catalyst that takes smartphones into the mainstream market. Apple did what they do best, execute a deathlike grip on all aspects of the product enabling them to solve the user experience problem and change the dynamics of an industry. Most observers feel this very same quality will ultimately undermine their ability to own the category. The OEM / Operator / ISV consortiums powered by Android and Symbian Foundation will pick things up from here, copy all aspects of Apple’s success and deliver the required global scale and unit defining volume. The end-game? Apple delivers reasonable 10% niche volume and classic high margins. The classic Tier I OEM’s split the higher 90% volume bounty and fight the margin, marketshare, differentiation battle as usual. Order is restored to the handset universe and everyone wins, no?

Let’s take a step back and see where we are. According to Gartner Q3 2009, “the smartphone category increased 13%, from the same period last year and continued to represent the fastest-growing segment of the mobile-devices market.” Anecdotally, mobile insiders admitted that in 2009 the mid-tier market as we know it collapsed and buyers skewed to either smartphones or dirt cheap handsets. Smartphones now account for 14% of the global handset market. The traditional break point from early adopter to early majority is approx 14%. All things being equal, smartphones are set to ascend into the early majority and claim another 30-40% chunk of the global handset market. At the Symbian Show, Geoffrey Moore author of Crossing the Chasm felt smartphones had jumped into the early majority bowling alley driven by the iPhone. The result is now a scramble with multiple vendors spinning out multiple smartphone approaches trying to lock into the Tornado growth to come.   

 Source: Dealing With Darwin, Geoffrey Moore

The theory aligns with a recent Gartner forecast, which estimates 500+ million smartphone units in 2012 within an overall handset market of 1.25 billion+. No wonder all Tier I OEM’s are scrambling to make an Android phone. Mo volume, mo margins, mo money.

Note: A linear extrapolation doesn’t work particularly well for Android. There is no way Android will deliver 19M units in 2009; however with the explosion of devices coming the 38M units in 2010 is a reasonable forecast.

Here is why iPhone will be the 70% market leader (versus the 10% niche) in the smartphone category.

First, the original value created between the iPod and iTunes was game-changing in terms of music and podcasting delivery. The result was the obliteration of the MP3 competition and a 70% marketshare. The game-changing value origins have magnified by offering every important digital entertainment form available (i.e. video podcasts, apps, movies etc.) and a corresponding digital supplier ecosystem to fit every possible consumer need (i.e. “there is app for that…”). More importantly, the iPod-to-iPhone life stage marketing will bridge the teen-to-adult user base and entrench a generation of buyers. In totality, a hell-on-wheels version of the whole being greater than the sum of its parts. This presents an iron-cast barrier for the competition that no single killer device from Nokia or anyone else can penetrate.

Second, Apple has hit an apex of coolness driven by amazing industrial design, user experience and an unappreciated latent cool factor built up over decades that became accessible to regular folks in the form of a $100 iPod. The iPhone was knighted the #1 coolest brand in the UK for 2009/10 by the Centre for Brand Analysis the result of 2500 individuals deliberating on the matter, presumably by the coolest people in Britian. They’ve expertly translated cool into sales moving from the 1) evangelistic band of Apple zealots (i.e. innovators) to 2) the technophiles (i.e. early adopters) to 3) the techno chic – those who are low on tech and high on cash (i.e. bleeding edge early majority). They will continue to transition cool to sales thru the early majority segments. This presents an uber vibe barrier driven by cool factor fundamentals that can’t be replicated by Android or anybody else.